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US seeks to woo private funds with toxic asset plan
Source: Agencies |
March 23, 2009, Monday
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Online Edition
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THE United States offered generous financing for private investors today as part of a plan to purge banks of up to US$1 trillion in toxic assets in its drive to pull the world's biggest economy out of deep recession.
The scheme to clean up banks' balance sheets of bad loans and securities that thwart lending is central to President Barack Obama's effort to revive the economy with stimulus spending, a financial sector clean-up and regulatory reform.
An Obama administration official said the government will put in US$75-100 billion from its bailout fund to team up with private investors and buy troubled assets from bank in a long-awaited move to get to the heart of the credit crisis gripping the US and world economy.
"We don't want the government to assume all the risk. We want the private sector to work with us," Treasury Secretary Timothy Geithner told Wall Street Journal in an interview.
The programme seeks to put government money alongside private capital and leverage that to US$500 billion, or possibly double that amount.
US stock futures and Asian share markets climbed on Monday in anticipation of the plan. Currencies that were sold off heavily during bouts of market volatility, such as the Australian dollar or sterling, also rose.
The euro climbed to a five-month high against the yen after European Central Bank President Jean-Claude Trichet said euro zone rates were already low and the ECB might turn to unconventional measures to get credit flowing again.
"There are a number of drawbacks associated with policy rates deliberately put at a zero level by the decision of the central banks. That's the reason we do not think it would be appropriate," Trichet told the Wall Street Journal in an interview published today.
The US Treasury's plan comes at a crunch time for Obama, who prepares to meet fellow leaders of the world's top 20 economies at a financial summit in London on April 2 and struggles to contain public anger over big bonuses paid by insurer AIG that has been bailed out with US$180 billion in taxpayer money.
The new White House team is also trying to win support for big-ticket items in Obama's record US$3.5 trillion budget proposal for the 2010 fiscal year -- something in very short supply among Republicans in Congress.
YEAR-END UPTURN?
Much is at stake in the US financial clean-up for the world economy, mired in its deepest slump since the 1930s Great Depression, and with many nations, particularly in Asia, relying on US recovery to kick-start their export-dependent economies.
Obama's team was "incredibly confident" the economy will start growing again this year, Christina Romer, head of the White House Council of Economic Advisers, said on Sunday.
Obama offered a word of caution, warning the US financial system still faced risks requiring government intervention to avoid a more destructive recession.
"There are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them," Obama said in an interview with the CBS program "60 Minutes" aired on Sunday.
"And if all those financial institutions fail at the same time, then you could see an even more destructive recession and potentially depression."
When Geithner first mentioned the plan to use public-private investment funds in February, markets were disappointed at the lack of details. On Monday, hopes that the Treasury will present a clear-cut plan to deal with the aftermath of a housing boom, encouraged investors to pick up riskier assets, such as stocks.
MARKET HOPES
"This can help risk appetite along with the potential out there for a delay to mark-to-market accounting, as is the surprisingly aggressive Fed moves from last week. Overall, just having more details to go through is an encouraging sign," said David Mann, senior currency strategist at Standard Chartered in Hong Kong.
The Nikkei share average rose 3 percent to a six-week high, while stock markets elsewhere in Asia-Pacific jumped 3.3 percent..
It remains to be seen whether hedge funds and other investors will join the toxic asset scheme. Many are concerned at the anger that has been leveled at Wall Street by lawmakers who are seeking to claw back bonuses from companies rescued with public funds.
The scheme to clean up banks' balance sheets of bad loans and securities that thwart lending is central to President Barack Obama's effort to revive the economy with stimulus spending, a financial sector clean-up and regulatory reform.
An Obama administration official said the government will put in US$75-100 billion from its bailout fund to team up with private investors and buy troubled assets from bank in a long-awaited move to get to the heart of the credit crisis gripping the US and world economy.
"We don't want the government to assume all the risk. We want the private sector to work with us," Treasury Secretary Timothy Geithner told Wall Street Journal in an interview.
The programme seeks to put government money alongside private capital and leverage that to US$500 billion, or possibly double that amount.
US stock futures and Asian share markets climbed on Monday in anticipation of the plan. Currencies that were sold off heavily during bouts of market volatility, such as the Australian dollar or sterling, also rose.
The euro climbed to a five-month high against the yen after European Central Bank President Jean-Claude Trichet said euro zone rates were already low and the ECB might turn to unconventional measures to get credit flowing again.
"There are a number of drawbacks associated with policy rates deliberately put at a zero level by the decision of the central banks. That's the reason we do not think it would be appropriate," Trichet told the Wall Street Journal in an interview published today.
The US Treasury's plan comes at a crunch time for Obama, who prepares to meet fellow leaders of the world's top 20 economies at a financial summit in London on April 2 and struggles to contain public anger over big bonuses paid by insurer AIG that has been bailed out with US$180 billion in taxpayer money.
The new White House team is also trying to win support for big-ticket items in Obama's record US$3.5 trillion budget proposal for the 2010 fiscal year -- something in very short supply among Republicans in Congress.
YEAR-END UPTURN?
Much is at stake in the US financial clean-up for the world economy, mired in its deepest slump since the 1930s Great Depression, and with many nations, particularly in Asia, relying on US recovery to kick-start their export-dependent economies.
Obama's team was "incredibly confident" the economy will start growing again this year, Christina Romer, head of the White House Council of Economic Advisers, said on Sunday.
Obama offered a word of caution, warning the US financial system still faced risks requiring government intervention to avoid a more destructive recession.
"There are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them," Obama said in an interview with the CBS program "60 Minutes" aired on Sunday.
"And if all those financial institutions fail at the same time, then you could see an even more destructive recession and potentially depression."
When Geithner first mentioned the plan to use public-private investment funds in February, markets were disappointed at the lack of details. On Monday, hopes that the Treasury will present a clear-cut plan to deal with the aftermath of a housing boom, encouraged investors to pick up riskier assets, such as stocks.
MARKET HOPES
"This can help risk appetite along with the potential out there for a delay to mark-to-market accounting, as is the surprisingly aggressive Fed moves from last week. Overall, just having more details to go through is an encouraging sign," said David Mann, senior currency strategist at Standard Chartered in Hong Kong.
The Nikkei share average rose 3 percent to a six-week high, while stock markets elsewhere in Asia-Pacific jumped 3.3 percent..
It remains to be seen whether hedge funds and other investors will join the toxic asset scheme. Many are concerned at the anger that has been leveled at Wall Street by lawmakers who are seeking to claw back bonuses from companies rescued with public funds.
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